Japanese Candles Patterns Explained
Understanding Candles in Stock - How to Read Candles in Stock - Japanese Candle Patterns ExplainedBrief History
Candlesticks were developed in the 18th century by the legendary rice trader known as Homma Munehisa to give an overview of the opening, high, low and closing market stocks price over a given period of time.
They were used by the legendary rice trader to predict future market stocks prices. After dominating trading the rice market, Munehisa then eventually moved to the Tokyo exchanges where he then gained a huge fortune using this analysis. It is said that He made over hundred consecutive winning trades.
Types of Stocks Trading charts
There are Three types of charts used in Stocks: Line, bar & candles.
Line - plots a continuous line connecting closing stocks prices of a stocks.
Bars- displayed as sequence of OHCL bars. O H C L represents OPEN HIGH LOW and CLOSE. The Opening stocks price is portrayed as a horizontal dash on the left and closing stocks price as a horizontal dash on the right.
The main disadvantage of a bars is that it is not visually appealing, therefore most traders do not use them.
Candlesticks - these use the same price data as bar charts (open, high, low, and close). However, they in a much more visually identifiable way which resembles a candle with wicks on both ends.
How to Interpret
The rectangle part is known as body.
The high and low are described as shadows & drawn as poking lines.
The color is either blue or red
- (Blue or Green Color) - Prices moved up
- (Red Color) - Prices moved down
Most softwares like the MT4, use colors to mark the direction. Colors used are blue or green: when price moves upward, red: when the price moves downward.
Candlesticks Vs. Bar Chart
When candlesticks are used it's very easy to see if the stocks price moved up or down as opposed to when a bars are used.
The Japanese methods also have very many setups that are used to trade the market. These patterns have different analysis interpretation & the most common are:
The above patterns is what makes the Japanese candlesticks popular among technical traders & it's why this type of analysis are the most widely used when it comes to analyzing the market. The analysis for these setup formations in stock trading is the same as that one used in stock trading.
Drawing These Charts on MetaTrader 4
To draw these on the MT4, select the charts plotting tools within the "MT4 Tool-bar" - shown below.
To view this tool-bar in MT4 navigate to 'View' Next to file at top left corner of the MT4 Platform, Click 'View', Then Click 'Toolbars', Then check 'Charts' Button Key. Above toolbar will appear.
Once the above tool bar, appears you can then select the type you want to convert to, If you want to view using the bar format, click the bar tool button as illustrated above, for line format click the line tool button key, for Japanese candles format click the "candlesticks tool button".
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